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OrderFlow Absorption Indicator

What it Does

The OrderFlow Absorption Indicator marks areas where the price absorbs a large volume of aggressive market trades. This indicates areas where price may bounce back due to large limit (resting) orders absorbing significant aggressor volume (market orders). Absorption can also be seen as "preventing" or "stopping" the other side from breaking through a price level (e.g. bids stopping an influx of sell market orders). Absorption may signal a change in sentiment, potentially leading to a pullback or reversal.

An Example of Absorption

Of course, it is not always the case that such bullish absorption will initiate a trend as the example above. The OrderFlow Absorption Indicator merely serves as a tool for spotting possible absorption points in the market which you can incorporate into your trading arsenal.

How it Works

The indicator actively monitors price changes and records volume accumulated at a price level. If the price bounces back to at least where it was before the current price move, the indicator records this as absorption, provided it meets the Volume Requirement and optional Time Requirement.

How to Use it

1. Set Parameters

Choose your desired tick size and volume filter value. If unsure, refer to the table on the top right of the chart for recommended values. An automatic volume limit filter mode is also available.
  • Automatic Limit Mode: Enable this mode to have the indicator automatically select a volume filter value. It calculates the standard deviation of the last n minutes of volume and multiplies it by a volume multiplier. You can adjust these parameters.
  • Higher Volume Filter: Setting a higher volume filter value results in fewer, but higher quality detections, reducing noise.

2. Enabling the Time Limit

Enabling the time limit further improves detection quality by filtering out price levels that can defend against quick, sudden aggressive orders, acting as confirmation and indicating strong sentiment and resilient liquidity.

3. Enabling Historical Data Absorption

The indicator can also detect absorption in historical data, though less accurately than in real-time due to OHLCV aggregation.

You can select the granularity of historical data.

  • Lower granularity (e.g., 1 second): Provides more accurate detections but may slow down the indicator.
  • Higher granularity: Improves speed but reduces detection accuracy.

Other Features

  1. Hovering: When hovering over an absorption point, the interface reveals the price where the absorption occurred, along with the volume absorbed by the bids and asks, as well as the volume filter value used.
  2. Delta Mode: In Delta mode, the system calculates the difference between the volume absorbed by bids and asks, revealing points only when the absolute value of this difference exceeds the volume filter value. Especially useful for larger tick sizes.

Troubleshooting

If the indicator doesn't mark anything, it means the traded volume hasn't exceeded the set volume filter value within the specified price intervals(tick size) and time limit. Adjust these settings as necessary.

Behind every successful Bull and Bear is a Penguin. Follow for OrderFlow & Volume Based Indicators.
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